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India's carbon market enters its compliance era: What 490 obligated entities now face
As countries around the world strengthen climate policies to meet their Paris Agreement commitments, carbon markets have emerged as one of the most effective tools for reducing greenhouse gas (GHG) emissions. Recognizing this, India has established the Carbon Credit Trading Scheme (CCTS) the foundation of the Indian Carbon Market (ICM) under the Energy Conservation (Amendment) Act, 2022, with the scheme formally notified in June 2023.
The CCTS marks India’s transition from the energy efficiency-focused Perform, Achieve and Trade (PAT) scheme to a comprehensive carbon market that incentivizes industries to reduce GHG emissions. Following key regulatory notifications in 2025–2026, the scheme has entered its implementation phase, with legally binding compliance obligations for energy-intensive sectors.
The CCTS creates financial incentives for industries to reduce emissions, invest in low-carbon technologies, and improve energy efficiency. It also strengthens India’s climate commitments while helping businesses enhance ESG performance and preparing them for parallel international regulations such as the EU’s Carbon Border Adjustment Mechanism (CBAM).
The CCTS is designed to create a domestic market where emission reductions have measurable financial value. India’s Carbon Credit Trading Scheme (CCTS) is built on two complementary pillars the Compliance Mechanism and the Offset Mechanism.
The Compliance Mechanism is a mandatory carbon market that targets energy-intensive industries. These entities are assigned Greenhouse Gas Emission Intensity (GEI) targets and are required to monitor, report, and verify (MRV) their emissions. Facilities that outperform their assigned targets are awarded Carbon Credit Certificates (CCCs), while those that fall short must purchase carbon credits or implement additional emission reduction measures to meet their compliance obligations.
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Complementing this is the Offset Mechanism, a voluntary market that encourages emission reduction and carbon removal projects beyond the regulated sectors. Eligible activities include renewable energy, green hydrogen, biofuels, waste management, afforestation and reforestation, carbon capture and storage (CCS), and other approved climate mitigation projects. To generate carbon credits, projects must demonstrate that their emission reductions are real, measurable, additional, and independently verified under approved methodologies. Once validated and verified by an Accredited Carbon Verification Agency (ACVA), successful projects are issued Carbon Credit Certificates (CCCs) that can be traded within the Indian Carbon Market.
Compliance Market Becomes Operational: The Government has notified Greenhouse Gas Emission Intensity (GEI) Targets Rules, making emission intensity targets legally binding for the first compliance sectors from FY 2025–26, marking the launch of India’s compliance carbon market.
Transition from PAT to CCTS: India is shifting from the Perform, Achieve and Trade (PAT) scheme to a comprehensive carbon market that incentivizes economy-wide greenhouse gas emission reductions.
Market Infrastructure Strengthened: The Indian Carbon Market Registry has been established to manage the issuance, transfer, and retirement of Carbon Credit Certificates (CCCs), while accreditation of verification agencies and trading infrastructure continues to advance.
Global Recognition: In June 2026, India presented the Carbon Credit Trading Scheme at the WTO Trade and Environment Week, highlighting its progress in building a transparent and robust domestic carbon market.
India’s Carbon Credit Trading Scheme marks the beginning of a new phase in the country’s climate transition. Although the market is still being rolled out in stages, the legal framework, institutional arrangements, compliance rules, and emissions targets are now largely in place, with the first carbon credit trading expected to launch by mid-2026.
The next phase will focus on scaling carbon trading, expanding sectoral coverage, strengthening verification capacity, and operationalizing the voluntary offset mechanism.
Organizations should begin preparing now by enhancing their GHG inventories, strengthening internal MRV systems, identifying emission reduction opportunities, and understanding how the emerging carbon market may affect their operations.
As India moves toward its Net Zero 2070 commitment, the CCTS is expected to become a cornerstone of the country’s decarbonization strategy, encouraging innovation, improving industrial competitiveness, and positioning India as a major participant in the global carbon economy.
